R
G A M 
Building on Success
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on
business strategy. We partner with clients in all sectors
and regions to identify their highest-value opportunities,
address their most critical challenges, and transform their
businesses. Our customized approach combines deep
insight into the dynamics of companies and markets with
close collaboration at all levels of the client organization.
This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and
secure lasting results. Founded in 1963, BCG is a private
company with 74 offices in 42 countries. For more information, please visit www.bcg.com.
Building on Success
G A M 
Kai Kramer
Brent Beardsley
Hélène Donnadieu
Monish Kumar
Andy Maguire
Philippe Morel
Masahide Ohira
Gary Shub
Tjun Tang
July 2011
bcg.com
© The Boston Consulting Group, Inc. 2011. All rights reserved.
For information or permission to reprint, please contact BCG at:
E-mail: bcg-info@bcg.com
Fax:
+1 617 850 3901, attention BCG/Permissions
Mail: BCG/Permissions
The Boston Consulting Group, Inc.
One Beacon Street
Boston, MA 02108
USA
Contents
Introduction
4
A Snapshot of the Industry
5
Key Trends in the Asset Management Market
10
Investor Demands Keep Toughening
10
Product Dynamics Continue to Shift
11
The Role of Regulation Is Increasing
17
Different Markets Pose Different Competitive Challenges
19
How to Maneuver Both at Home and Abroad
21
Pursuing Growth in Your Home Market
21
Pursuing Growth Across Borders
22
For Further Reading
27
Note to the Reader
28
B  S

Introduction
B
uilding on Success: Global Asset Management
2011 is The Boston Consulting Group’s ninth
annual study of the worldwide assetmanagement industry. Like its predecessors,
this edition reflects a comprehensive market-sizing effort. We covered 35 major markets (representing more than 95 percent of the global asset-management
market) and focused exclusively on assets that are professionally managed for a fee. We also conducted a detailed
analysis of the forces that are shaping the fortunes of
asset management institutions around the globe.
In addition, this report contains conclusions drawn from
a detailed benchmarking study of leading industry competitors—representing 50 percent of global assets under
management (AuM)—that BCG conducted early in 2011.
Our aim was to collect data on fees, products, distribution
channels, and costs in order to gain insights into the current state of the industry and its underlying drivers of
profitability.

Overall, 2010 was a better year for asset managers than
2009—confirming the rebound from the global financial
crisis. Assets under management continued to grow and
profitability improved, easing some of the pressure on
industry participants. Yet today, even as the crisis fades
further into the past, significant hurdles remain for asset
managers. Economic uncertainty lingers, investors are
becoming ever more demanding, and the full potential of
“money in motion” will be difficult to capture. The question of how to achieve further growth in both mature and
emerging markets is a daunting one. In order to build on
the postcrisis success that we have already witnessed,
asset managers will need to forge and execute thoughtful
strategies.
Clearly, the global asset-management landscape remains
an enormously challenging one. But along with great
challenges come great opportunities.
T B C G
A Snapshot of the Industry
I
n 2010, the global value of professionally managed assets rose by 8 percent to $56.4 trillion.1
(See Exhibit 1.) This increase followed a gain of
13 percent in 2009 and a decline of 17 percent in
2008. Global AuM thus surpassed the previous
year-end high of $56.2 trillion achieved in 2007, thanks
to stronger-than-expected growth.
Net new inflows remained marginally positive (slightly
less than 0.5 percent of year-end 2009 AuM), affected by
year-end outflows of 0.2 percent in institutional AuM and
inflows of 1.6 percent in retail AuM. Again, there was
wide variation in net new money by region. The Americas posted overall net outflows of 0.4 percent, while there
were net inflows in Europe (0.9 percent) and Asia-Pacific
(5.6 percent).
Still, there was wide regional variation in AuM expansion
In terms of client segments, retail AuM—up 9 percent
in 2010. Latin America, with an increase of 18 percent,
to $22.8 trillion—posted stronger growth than instituposted the strongest growth. In North America, AuM rose
tional AuM, which rose 7 percent to $33.6 trillion. (See
by 8 percent, led by the U.S. (8.5 percent). AuM in Europe
Exhibit 2.) Retail growth was driven by
rose by 7 percent, with considerable variagains in discretionary mandates for hightion across countries. For example, the U.K.
Global AuM of
net-worth individuals, as well as in unitposted an increase of 12 percent, compared
$56.4
trillion
surpassed
linked insurance and pension products.
with 5 percent in Germany and 3 percent
Such gains were strongest in the U.S. marin France. Japan and Australia, the two largthe previous year-end
ket but were evident as well in the U.K.
est markets in the Asia-Pacific region, posthigh achieved in 2007.
and Germany.
ed a combined AuM increase of 2 percent
(1 percent and 4 percent, respectively). In
Institutional growth was strongly supportemerging markets other than Latin Ameried by the pension and insurance segments but also by
ca, AuM rose by 10 percent in South Africa and the Middle
government funds. By the end of 2010, the institutional
East (combined) and 11 percent in Asia (excluding Japan
segment held 60 percent of global AuM, compared with
and Australia)—less rapidly than in the precrisis years.
40 percent for the retail segment. Retail has been regaining ground over institutional during the past two years,
Slower growth in Asian emerging markets was largely
owing to somewhat higher levels of equity investment.
due to a 6 percent decrease in AuM in retail mutual
Still, at the end of 2010, retail AuM had not achieved its
funds—a reflection of both volatile equity markets and
precrisis (year-end 2007) level, while institutional AuM
an ongoing lack of market confidence following the crisis.
had done so.
At the same time, strong growth was achieved in other
segments in Asia, such as discretionary mandates for
high-net-worth individuals, as well as in insurance, pen1. For all countries whose currency is not the U.S. dollar, we used
sion, and government funds.
the average 2010 exchange rate for all years in order to avoid a curGlobal AuM growth in 2010 was driven principally by the
continuing recovery of equity markets, much as in 2009.
B  S
rency impact on growth rates. Owing to changes in methodology
and currency rates as well as updated historical data, market-sizing
totals are not consistent with those stated in BCG’s previous Asset
Management reports.

Exhibit 1. Global AuM Recovered Further in 2010
Assets under management, 2002–2010 ($trillions)
8
–21
11
28.5
16.7
–13
13
10.4
2002 2007 2008 2009 2010
North America
2002 2007 2008 2009 2010
Europe
18
–1
24
30
16.3 14.1 15.6 16.7
22
0.3 0.9 0.9 1.1 1.3
2002 2007 2008 2009 2010
Latin America
–15
15
8
13
26
0.6 2.2 2.1 2.6 2.9
2002 2007 2008 2009 2010
Asia
(excluding Japan
and Australia)
3.1
5.7
5.2
–17
11
0.5 1.0 0.8 1.0 1.0
2002 2007 2008 2009 2010
South Africa and
the Middle East
4.8
5.3
2002 2007 2008 2009 2010
Japan and Australia
10
13
2
–16
11
–6
11
9
27.6
22.5 25.5
7
8
13
56.2
46.5
52.4
56.4
32.8
2002 2007 2008 2009 2010
Global
Annual growth,
2002–2007 (%)
Annual growth,
2008 (%)
Annual growth,
2009 (%)
Annual growth,
2010 (%)
Sources: BCG Global Asset Management Market Sizing database, 2011.
Note: Global includes offshore AuM. North America = Canada and the United States; Europe = Austria, Belgium, the Czech Republic, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Poland, Portugal, Russia, Spain, Sweden, Switzerland, and the United
Kingdom; Asia = China, Hong Kong, India, Singapore, South Korea, and Taiwan; Latin America = Brazil, Chile, and Mexico. For all countries whose
currency is not the U.S. dollar, we applied the average 2010 exchange rate to all years. AuM numbers for 2009 differ from those in last year’s report
owing mainly to differences in the exchange rates used. Apparent discrepancies in growth rates are due to rounding.
General investment patterns—as reflected by mutual
fund sales—have shown considerable variation over the
past few years, not only among asset classes but also
among regions. (See Exhibit 3.) In Europe, for example,
there were net inflows in nearly all key asset classes in
2009 and 2010, with particularly heavy sales of bond and
hybrid (balanced) funds as well as of equity funds and
exchange-traded funds (ETFs). The exception was money
market funds, which were characterized by solid outflows
owing to redemptions of assets parked there during the
crisis (when equity markets were tumbling), low interest
rates, and more attractive deposit accounts offered by
cash-hungry banks.
In 2011, we have seen positive net inflows into mutual
funds in Europe as money market outflows have slowed

and hybrid funds and ETFs have remained strong. Net
inflows into the traditional equity and fixed-income asset
classes, however, have been relatively weak.
In the U.S., money market funds also posted sharp outflows in 2009 and 2010, but the rate of exit has slowed
thus far in 2011. Net inflows into equity and hybrid
mutual funds were weak over the same two-year period
but very strong in fixed-income funds and ETFs. By
contrast, in 2011, flows into fixed-income funds have virtually vanished and there has been some recovery in
equities.
In Asia, the situation has been more difficult. Aer an
overall positive year in 2009 driven by fixed income and
equity, 2010 and early 2011 have been less robust. In
T B C G
Exhibit 2. Retail AuM Grew Faster Than Institutional AuM in 2010
Retail AuM
Institutional AuM
+9%
$billions
23,523
CAGR (%)
32,717
21,040
Insurance
7,173
10,653
–2
6
2,427
–1
7
5,230
0
11
4,527
0
12
2010
10,036
33,570 2007– 2010
2010
31,332
7,986
28,235
7,490
18,250
Mutual 11,299
funds
CAGR (%)
+7%
$billions
2007–
22,837 2010 2010
4
7
7,024
8,915
Unit-linked
insurance
2,477
2,262
1,921
Unit-linked
pensions
5,199
Private
banking1
4,548
3,578
4,033
2007
2008
2009
3,835
4,709
Pensions 18,418
14,882
Corporations
Nonprofits
Governments
Banks
2,270
1,480
1,803
1,573
2007
2,249
1,281
1,607
1,192
2008
17,204
18,756
1
9
2,389
1,288
1,804
1,157
2009
2,431
1,357
1,921
1,119
2010
2
–3
2
–11
2
5
7
–3
Source: BCG Global Asset Management Market Sizing database, 2011.
Note: For all countries whose currency is not the U.S. dollar, we applied the average 2010 exchange rate to all years. Because of rounding, some figures
do not add up to the totals shown.
1
Private banking consists of AuM in discretionary mandates, which generate management fees (excluding the portion invested in mutual funds, in order
to avoid double-counting with the mutual funds category).
Exhibit 3. Regional Differences in Investment Patterns Have Continued
Net sales by asset class of mutual funds and ETFs
United States
Europe
241
200
116 118
35
0
Asia
Net sales ($billions)
58
60
47
Net sales ($billions)
200
Net sales ($billions)
376
400
17 23 23 17
100 88
24
0
–9
–37
116
96
70
58
0
–78
5
30 27
78
47 46
27
10
4
25
–57
–200
–539 –525
–600
Equity
2009
Fixed
income
Money
market
2010
Q1 2011
0
–9
1
–2
–6
–9
–16 –11
–35
–33
Equity
Hybrid
Other
Fixed
Money
ETF2
income
market
–60
–205
–90
–300
ETF1
Hybrid
0
–30
–200
13
9
–23
–11
–100
–400
18 18
3
Equity
Hybrid
Other
Fixed
Money
income
market
ETF
Sources: Investment Company Institute (ICI); European Fund and Asset Management Association (EFAMA); Lipper FMI; BlackRock, ETF Landscape;
press reports; BCG analysis.
Note: Mutual fund sales correspond to net sales of UCITS funds in Europe.
1
Corresponds to value of net issuance of ETF shares.
2
Through February 2011.
B  S

2010, outflows were heavy in money market and equity
funds, although performance was stronger in fixedincome funds and ETFs. In 2011, we have seen outflows
across all traditional asset classes: equity, fixed-income,
and hybrid funds.
economics were driven mostly by the 8 percent growth in
AuM for the year. Asset managers were also able to improve their average revenue margins to 29.8 basis points
in 2010—up from 29.0 basis points in 2009—partly because of an improved product mix that featured growth
in higher-margin (such as equity-related) products.
Nonetheless, a continuing and noteworthy structural
Many players were also able to hold the
trend in 2010 was significantly higher inline on costs, which remained at roughly
flows to Asian and other emerging-market
A continuing trend
20 basis points in 2010. Ultimately, profit
products from investors around the world.
margins
as a share of net revenues reached
In both the U.S. and Europe, emergingwas higher inflows
33 percent, up from 31 percent in 2009.
market equity funds and global bond
to Asian and other
The historical peak of 39 percent achieved
funds were among the top strategies in
before the crisis is still an aspiration.
terms of net sales—while domestic (sinemerging markets.
gle-country) large-cap equity funds were
Of course, there was considerable variaamong the least effective strategies. In
tion in profitability among individual asset managers.
addition, asset allocation strategies gained significant
About 73 percent were able to increase their profitabilground in Europe.
ity, while 27 percent saw their profitability decline. For
about 75 percent of the latter group, the decline was
The further recovery of AuM in 2010, along with a shi in
driven by a decrease in revenues. For the remaining 25
asset structure, translated into improved profitability for
percent, the problem was that despite rising revenues,
asset managers. (See Exhibit 4.) The industry’s overall
Exhibit 4. Industry Profitability Improved in 2010
Net revenue margins increased
Net revenues1 (basis points)
40
32.6 33.6
27.9 29.4 30.2
30.6
29.0
Profit margins rose
29.8
Operating margin (% of net revenues)
39
38
38
40
35
20
34
33
31
30
0
2003 2004 2005 2006 2007 2008 2009 2010
27
20
Costs decreased further
Costs (basis points)
40
20
20.3
19.2
18.6
10
20.1
20.7
20.2
20.1
19.9
0
0
2003 2004 2005 2006 2007 2008 2009 2010
2003 2004 2005 2006 2007 2008 2009 2010
Source: BCG Global Asset Management Benchmarking database, 2011.
1
Management fees net of distribution costs.

T B C G
Still, the fact that industrywide profit margins averaged
above 30 percent in 2010 provides clear proof that asset
management, viewed alongside many other sectors of
financial services, remains a very attractive business.
there have been fewer large deals since the beginning of
2010 than there were in 2009. But the process of consolidation will certainly continue, albeit driven more by a desire to develop specific products (especially alternatives)
or move into specific markets (especially emerging markets) than by the need to increase scale—even though
scale-driven deals can generate solid synergies. The name
of the game is still growth.
In addition, higher overall profitability has contributed to
slower consolidation among asset managers. Better performance and improved macroeconomic trends have
eased the pressure on parent companies to divest, and
In general, during a second year of recovery from the socalled Great Recession, the global asset-management
business has continued to evolve in many ways—as we
shall see in the next chapter.
their cost bases increased faster than revenues in absolute terms—with some experiencing overall cost increases of 20 percent or more.
B  S

Key Trends in the Asset
Management Market
D
espite the recovery, asset managers cannot afford to become complacent. Investors are even more demanding, product
trends are continuing to shi , the regulatory climate is tightening further, and
competition is intensifying—with different markets posing different challenges. In addition, factors such as
chronically low interest rates, the risk of inflation, potential market bubbles, and lingering market volatility—a
reflection of a macroeconomic climate that is still unsettled—must be dealt with.
In this chapter, we will take a closer look at the major
trends affecting asset managers. Some of these patterns
are ongoing, while others represent new shis in the landscape.
Investor Demands Keep Toughening
The financial crisis, by introducing great market uncertainty and calling many traditional investment beliefs
into question, has made investors much more likely to
scrutinize and challenge their asset managers. And although markets have improved, the pressure from investors—on both the institutional and retail sides—has not
let up.
Institutional Investors. With strong capabilities in transparency and risk management becoming just as important as overall performance, many institutional investors—insurers, pension funds, corporations, governments,
and other entities—have put asset managers under scrutiny. They are more demanding in all aspects of the relationship: reviewing the value-adds (such as research) that
they are receiving, seeking more customized solutions,

probing into managers’ investment processes and philosophies, and questioning traditional performance benchmarks (especially in fixed income). More than ever, asset
managers need to have a tight, compelling investment
proposition.
Asset managers must also cope with factors such as regulatory changes that influence their clients’ objectives and
low interest rates that hinder the ability to achieve desired yields. For example, Solvency II legislation will further tighten the constraints on European insurers—bringing new challenges to their asset managers.
Another highly sought capability is expertise in liabilitydriven investment (LDI). Penetration of LDI strategies
rose significantly from 2007 through 2009, and although
it slowed somewhat in 2010, LDI is currently being used
by close to 40 percent of pension funds in the U.K. and
more than 90 percent in the Netherlands. In the U.S., the
market for full LDI solutions is underdeveloped relative
to those countries, although roughly 50 percent of U.S.
pension funds are currently employing some form of LDI
strategy.
Private Investors. Neither wealthy clients nor those with
more modest sums to invest have relaxed their attitudes
toward asset managers, despite more favorable equity
markets. Private investors are increasingly looking for solutions that effectively balance risk in a still-uncertain environment. Indeed, following the losses absorbed during
the crisis, many investors continue to lack confidence in
mutual funds.
Such wariness has particularly been the case in countries
where risk aversion has traditionally been relatively high.
In Germany, for example, there has been just a trickle of
T B C G
flows into mutual funds recently—apart from a few highly popular funds, ETFs, and “Riester” related funds (which
have some tax advantages). And in China, the combination of losses experienced during the crisis and shortterm economic cooling measures has prompted continuing outflows from mutual funds.
Broadly speaking, it is fair to say that both institutional
and private investors are maintaining a very cautious outlook on investment markets. BCG’s third annual global
investor survey, carried out in March 2011, provided ample evidence. (See the sidebar “BCG Survey: Investors
Today Are Cautiously Optimistic.”)
Product Dynamics Continue to Shift
Many product shis that we observed even before the crisis began have continued through 2009 and 2010 and into
2011. One ongoing trend is the faster growth of passively
managed and alternative products, compared with actively managed products. (See Exhibit 5.) To be sure, actively
managed assets still account for roughly 80 percent of
global AuM and are expected to remain above 70 percent
for some time. But their share is slowly declining.
Actively Managed Products. Although the picture in actively managed products varies somewhat by region, the
BCG Survey
Investors Today Are Cautiously Optimistic
During the first quarter of 2011, BCG invited some 460
professional investors and sell-side equity analysts from
Europe and the U.S. to participate in an online survey. The
survey is the third in a series that BCG has conducted
since 2009, probing investors’ views on the global economic environment and priorities for business value creation. Below are the key findings of the survey. (For more
details, see “All That Cash,” BCG article, May 2011.)
Investors believe that the worst is over, but they continue to expect a low-growth environment for at least
two more years. Additional sentiments include the
following:
◊ The economic recovery has been faster than expected.
◊ A double-dip recession is unlikely.
Given their “alpha value” orientation, investors currently prefer that companies focus more on organic
growth than on acquisitions, exercising prudence in
free cash flow and capital deployment.
◊ Any acquisition must be strategically sound; otherwise,
cash should be returned to investors.
◊ Higher dividends are generally preferred over share repurchases.
Management credibility and three- to five-year revenue-growth potential are the most important criteria
for investors in deciding which financially healthy
companies to invest in.
◊ The potential for improvement in return on invested
capital (ROIC) is very important.
◊ Global equity markets will probably deliver modest
gains in 2011 and 2012—roughly 7 percent and 4 percent, respectively.
◊ Undervaluation and near-term EPS growth are less important than in the 2010 survey.
◊ Average annual total shareholder returns will be below
the long-term historical average for the next three years
(about 7 or 8 percent versus 9.3 percent).
About 65 percent of investors believe that companies
should do a better job of aligning their corporate,
financial, and investor strategies.
Investor focus continues to evolve toward a value orientation and a balance between long- and short-term
investments.
◊ Investors expect low growth, are value oriented, and
seek companies that invest aggressively in R&D and
emerging markets in order to drive organic growth.
◊ Postcrisis value orientation remains very strong.
◊ In 2011, investors are putting more emphasis on stock
picking, moving toward a more balanced short- and
long-term investment outlook, and putting less emphasis on undervaluation and near-term EPS growth.
◊ The long-term investment focus of 2010 has shied to
a balance between short and long term in 2011.
B  S

broad-brush trend of the past five years has been toward
more fixed-income products and greater exposure to
emerging and global markets. In the U.S., for example,
sales of mutual funds both in 2010 and over the past five
years have been particularly strong in core bond funds,
foreign and emerging-market equity funds, and targetdate funds. (See Exhibit 6.) In Europe, the trends have
been somewhat similar.
Moreover, a survey of European institutional investors
carried out in December 2010 indicated that these dynamics are poised to continue—not just for tactical reasons but also for structural reasons. When asked which
asset classes would receive higher allocations in their
investments in 2011, survey participants gave the top
spots to emerging-market equity and debt—a structural
shi led by macroeconomic trends—as well as to corporate credit (especially in Asian emerging markets), which
is a more tactical move. (See Exhibit 7.) Clearly, asset allocation is shiing eastward. This pattern is somewhat
similar to the ongoing shi toward alternative asset
classes, as investors from mature economies seek out-
size returns that are potentially uncorrelated with the
market.
Another dynamic in actively managed products is that in
mature markets, a small number of funds are attracting
a high share of sales. (See Exhibit 8.) In U.S. fixed-income
funds, for example, 5 percent of available funds accounted for 57 percent of net sales in 2010. And in European
equity funds, 5 percent of available funds accounted for
56 percent of net sales. In addition, a handful of successful asset managers in mature markets are attracting a
high percentage of net inflows. Such players are oen
gaining share not only in their home markets but also
across regions.
Still, in the wake of strong growth in fixed-income products, new concerns about the performance and risks of
this asset class are arising. With a paucity of supply in
some fixed-income classes, there are questions about
whether bonds—given low interest rates, the potential for
sovereign defaults, and inflationary concerns—will remain
a safe haven (of sorts) that effectively diversifies
Exhibit 5. Alternative and Passive Products Should Keep Outgrowing Traditional Active
Products
CAGR, 2010–2014 (%)
25
Passive products/ETFs
20
ETFs
Alternative products
15
10
Passive fixed
income
Traditional
active products
Passive equity
Infrastructure
Hedge funds
Commodities
Real estate
Absolute return
(including REITs)
Balanced
Private equity
5
LDI
0
Fixed
income
Structured
Quantitative
Active
equity
Money market
50
100
150
1
Net revenue margin (basis points)
Estimated size, 2010
($trillions; scale = $1 trillion)
Traditional active
Passive
Alternative
Source: BCG analysis.
Note: LDI is liability-driven investment.
1
Management fees net of distribution costs.

T B C G
Exhibit 6. Growth Has Been Strong in Bonds, Emerging-Market Equity, and Solutions Funds
Net sales of mutual funds by strategy ($billions)
United States
Europe
2010
2005–2010
119
Core bonds
2010
Core bonds
465
2005–2010
Asset allocation
51
Asia-Pacific country equity
High-yield bonds
40
Global equity
139
Emerging-market equity
46
Target date
45
Target date
Emerging-market bonds
39
Corporate bonds
48
Foreign equity
32
World allocation
126
Emerging-market equity
29
Emerging-market equity
46
World bonds
32
Emerging-market equity
106
Global bonds
29
High-yield bonds
45
Emerging-market bonds
45
Foreign equity
247
243
79
Multisector bonds
25
Munis
Global equity
17
World allocation
24
Asset allocation
84
Asia-Pacific equity
12
BRIC equity
37
Commodities
19
World bonds
82
Flexible bonds
10
Commodities
18
Absolute return/long-short
17
Multisector bonds
78
Absolute return
8
Sector equity
14
54
Asia-Pacific bonds
16
Bank loans
0
Equity
Commodities
200 400 600
Bond
102
0
200 400 600
7
0
14
Convertible bonds
200 400 600
0
200
400
600
Other
Sources: Morningstar; BCG analysis.
Exhibit 7. Asset Allocation Is Shifting Eastward
Delta
(increase minus
decrease)
Changes planned to 2011 asset allocation by
European institutional investors (% of respondents)
1
8
Other emerging-market equity
51
Corporate credit—Asian emerging markets 2
Government fixed income— 3
Asian emerging markets
Asian equity 10
Corporate credit—rest of world 1
Corporate credit—U.S.
27
26
69
28
25
57
9
European equity
26
Keep the same/don’t know
9
–3
6
14
63
20
40
60
–14
6
63
7
80
–3
–11
11
72
30
0
18
20
61
22
Government fixed income—Europe
11
85
25
Government fixed income—U.S.
18
15
57
9
Domestic equity
23
19
74
23
Bank loans
33
79
80
U.S. equity
32
71
5
Corporate credit—Europe
Decrease
41
100
–16
–23
–50
0
50
Percentage points
Increase
Sources: Pension fund survey, December 2010; BCG analysis.
Note: Because of rounding, percentages may not total to 100.
1
Equity from markets other than domestic, U.S., Europe, and Asia.
B  S

equity risk. Indeed, the largely favorable bond environment that has existed for roughly two decades has wound
down. Lower expected returns and relatively high volatility may hurt future growth. And there are other questions:
Are debt-weighted benchmarks still appropriate? Will rising asset classes such as alternatives benefit as investors
shy away from bonds? The answers to such queries will
not be known for at least a few more years. In the meantime, we expect continued success for players that are able
to provide decent performance in fixed income.
A key structural development is the move to more customized solutions that are oriented toward specific outcomes or time frames, or that are explicitly linked to balance sheets or specific macroeconomic trends or both.
Such products include asset-allocation and target-date
offerings, as well as LDI. In Europe, for example, asset
allocation funds are becoming increasingly popular, accounting for 3 of the top 15 mutual fund strategies in
2010 in terms of net sales.
Moreover, in the U.S., target-date funds continue to expand substantially following an average growth rate of
roughly 30 percent per year over the past decade—and
about 13 percent annually from 2007 through 2010, despite the crisis. While still representing only about 3 percent of U.S. long-term mutual funds, target-date funds are
taking an increasing share of industry flows—nearly 10
percent in 2010—and are particularly relevant in the defined-contribution channel. Such funds have not yet
made substantial inroads in Europe, but this could soon
change. In the U.K., for example, the government has said
that target-date funds may be the default investment options for the planned National Employment Savings Trust
(NEST) pension scheme—to be established by 2012—in
which all workers 21 years of age and older will be automatically enrolled.
Passively Managed Products. Passive investment strategies continue to gain ground as more investors, both institutional and private, question the ability of active managers to outperform the market. Among passively
managed products, the most noteworthy development in
2010 was the continuing growth of ETFs, particularly in
the U.S. and Europe. (See Exhibit 9.) In the U.S., the
amount of AuM invested in ETFs grew by 26 percent in
Exhibit 8. Net Sales Are Highly Concentrated
Percentages of funds and share of net sales, 2010
U.S.-domiciled funds
%
100
Europe-domiciled funds
2
13
3
12
4
15
17
80
50
50
28
28
50
29
50
21
60
24
40
30
30
30
57
53
30
56
20
38
15
0
15
5
Proportion Share of
net sales
of funds
Equity
5
Proportion Share of
of funds net sales
Fixed income
15
5
Proportion Share of
of funds
net sales
Equity
15
5
Proportion Share of
of funds net sales
Fixed income
Sources: Morningstar; BCG analysis.
Note: Based on funds with positive net sales only.

T B C G
2010 to $891 billion—and has nearly tripled since 2005.
In Europe, ETFs grew by 25 percent to $284 billion in
2010 and are fivefold higher than in 2005. Nonetheless,
the total share of AuM invested in ETFs remains small in
each market—3.4 percent in the U.S. and 1.7 percent in
Europe.
Despite some ongoing discussion about counterparty
risk for ETFs that are not fully replicated, ETFs are
poised for further growth. This is particularly true on the
institutional side, which we estimate to represent 50 percent of the ETF business in the U.S. and 90 percent in
Europe. According to BlackRock, 45 percent of plan
sponsors that use ETFs do so for tactical adjustments,
with 38 percent using them for transitions, 31 percent
for cash equitization, 28 percent for core/satellite allocation, 24 percent for rebalancing, and 24 percent for portfolio completion.2
It is also interesting to note that, in terms of AuM, ETFs
have become more prominent for private investors as
building blocks for investment solutions provided directly by wealth managers. This represents a key change, as
ETF adoption had previously been slowed somewhat by
the lack of attractive margins for distributors—especially
in Europe and, to a lesser extent, in the U.S., owing to the
high penetration of retail-managed programs as opposed
to standalone mutual funds.
Although ETF markets are concentrated—more so in the
U.S. than in Europe—there has been considerable movement among market participants. (See Exhibit 10.) In Europe, a number of smaller players have been able to grow
strongly, and the use of derivatives has driven the ability
to develop businesses that would otherwise be subscale.
In particular, some institutions from the investment banking sector have leveraged their derivatives skills to develop an ETF business. Overall, several players in Europe
managed to grow by more than 50 percent in 2010
through different approaches—typically using ETFs as
part of broader solutions for institutional investors or as
an element of wealth management solutions. We have
seen similar trends in the more developed U.S. market,
although there has been less shiing among the positions
of top players than in Europe.
Alternative Investments. Alternative investments such
as real estate, hedge funds, private equity, and infrastructure funds were hurt severely by the crisis. Yet research
2. BlackRock research, ETF Landscape: Industry Highlights, Year End
2010.
Exhibit 9. ETFs Have Continued to Grow Strongly
Amount and share of ETFs in AuM
United States
Europe
%
4
$billions
2,500
+24%
$billions
1,000
3
800
3
600
1,500
1,000 1.3%
891
581
299
407
$billions
1,000
800
3
1.7% 2
+39%
400
2
+19%
400
705
1.1%
1
497
2007
2009
2005
2008
2010
2006
AuM in ETFs ($billions)
%
4
600
2
0
%
4
3.4%
2,000
500
Rest of the world
0
200
1
0.4%
227 284
90 128 143
0 55
0
2005
2007
2009
2006
2008
2010
ETF share of total AuM
200
0.7%
1
69 87 71 104 136
0
0 58
2005
2007
2009
2006
2008
2010
CAGR
Sources: BlackRock research; BCG Global Asset Management Market Sizing database, 2011; BCG analysis.
B  S

confirms that there is continued interest in alternative
strategies, especially among institutional investors—even
if such investors are becoming increasingly demanding
with regard to transparency, risk management, operating
model, and the overall track record of their asset managers. Indeed, we have observed a more evolved and nuanced appreciation for the role that alternatives can play
in a portfolio, and a greater understanding of the associated risks. Moreover, although alternatives clearly still
play a role in private banking, there is less blind faith in
the asset class as a whole than before the crisis.
In the hedge fund arena, overall AuM—$2.02 trillion at
the end of the first quarter of 2011—has surpassed the
precrisis peak level of $1.86 trillion reached at the end
of 2007. But the pure number of hedge funds—9,418 versus 10,096 at the same points in time—has not yet
caught up. In addition, individual hedge funds have
grown much more significantly—at a compound annual
rate of 5.4 percent from the end of 2007 through the end
of the first quarter of 2011, to $1.35 trillion in AuM—
than funds of hedge funds (FoHF). Over the same time
period, FoHF were hit hard as investors questioned their
Exhibit 10. The ETF Market Is More Consolidated in the U.S. Than in Europe
The top three players in the U.S. have 85 percent of the ETF market
AuM, 2010
($billions)
Market share,
2010
(%)
AuM, 2009
($billions)
Growth in
2010
(%)
Net sales,
2010
($billions)
Share of
net sales, 2010
(%)
iShares
431.4
48
364.4
18
27.5
26
SSgA
176.8
20
149.8
18
11.7
11
Vanguard
148.3
17
92.0
61
40.5
38
PowerShares
41.5
5
33.6
24
3.4
3
ProShares
21.6
2
23.2
–7
2.1
2
Van Eck Global
20
2
12.5
60
3.7
3
BNY Mellon
12.2
1
8.6
42
1.6
2
WisdomTree
9.9
1
6.4
55
3.0
3
Direxion Shares
6.6
1
5.0
32
2.1
2
–
705.4
26
106.6
–
Total market
891
The top three players in Europe have 71 percent of the ETF market
AuM, 2010
($billions)
iShares
Lyxor
Db x-trackers
Credit Suisse
Zurich Cantonal Bank
Commerzbank
Amundi
ETFlab
UBS
EasyETF
Source
Total market
Market share,
2010
(%)
AuM, 2009
($billions)
Growth in
2010
(%)
Net sales,
2010
($billions)
Share of
net sales, 2010
(%)
101.8
52.4
47.9
15.6
11.8
8.6
7.2
6.8
6.6
5.5
5
36
18
17
5
4
3
3
2
2
2
2
85.8
45.6
37.2
9.6
6.7
6.2
4.8
7.1
3.6
5.8
2.9
19
15
29
63
76
39
50
–4
83
–5
72
13.3
6.8
8.0
4.5
2.1
2.1
2.2
0.6
2.7
–0.5
1.3
29
15
18
10
5
5
5
1
6
–1
3
284
–
226.6
25
106.6
–
Sources: BlackRock research; BCG analysis.

T B C G
value in terms of selection and performance. The amount
of AuM in FoHF is still well below its 2007 peak. Nonetheless, FoHF attracted $5 billion in net inflows in the
first quarter of 2011, owing in part to investors lacking
either the necessary scale or the right selection capabilities to invest in individual hedge funds. There is still debate about whether FoHF will regain significant share in
the future.
was that marketing a fund would help attract assets,
which would benefit investors in the long run by allowing
the fund to eventually lower expenses because of economies of scale. But there are questions as to whether this
objective has truly been accomplished.
Today, all investment fees—including 12b–1 fees—will
come under increased scrutiny from new
Department of Labor interim financial
Apart from
regulations. A potential reduction in any
Moreover, although the crisis has already
alternatives, pricing in
fees would affect the profitability of asset
exerted considerable downward pressure
the asset management
managers. These regulations also require
on the pricing of alternatives—especially
new transparency for providers of bunin hedge funds—this pressure shows little
industry has largely
dled 401(k) services—which, in particular,
sign of letting up. Top players may be able
held up.
must offer plan sponsors full transparento resist lowering prices, but many asset
cy into record-keeping costs separately
managers are continuing to feel the
from investment management fees. This requirement
squeeze. It is also important to note that, apart from almay further erode revenue streams for providers of bunternatives, pricing in the overall asset-management indled defined-contribution plans and potentially accelerdustry has largely held up despite the crisis. While some
ate the opening up of these plans to investment-only
players, especially marginal ones, may be considering
providers.
lowering their fees to attract new business, material
changes are not expected—at least not in the near term.
Separately, tighter maturities, improved quality standards, and new liquidity requirements for money market
funds stemming from new SEC reforms will likely affect
The Role of Regulation Is Increasing
asset manager profitability and investor returns.
The global financial crisis brought the regulation of financial markets to the fore all over the world. GovernUCITS IV. In Europe, the fourth generation of Undertakments and regulatory bodies have pledged to stay vigiings for Collective Investments in Transferable Securilant, keeping a sterner eye on banks, insurers, asset
ties (UCITS IV), set to be implemented in early July
managers, and other providers of financial services. In
2011 (as of this writing), will introduce mechanisms to
general, both existing and proposed regulations have the
increase cross-border competition, reduce costs, and engoal of protecting investors through increased transparhance transparency. UCITS IV will allow easier crossency—in terms of the nature of products, their purportborder fund initiatives, permit quicker and more
ed benefits and risks, and the fees that they carry. But we
straightforward approval processes for the launch of
have observed that financial regulation aimed at safenew funds, and enable cross-border master-feeder fund
guarding asset management clients—by forcing asset
structures. By helping to make operating models more
managers to adjust and upgrade their services, likely
efficient, UCITS IV may facilitate faster growth for some
raising costs—may, in fact, have a bigger impact on the
players.
industry than regulations aimed directly at asset managers themselves. Let’s look more closely at a few of the
MiFID II. The objectives of MiFID I (the original Markets
regulations currently affecting the industry.
in Financial Instruments Directive) were to harmonize
EU financial markets and improve efficiency by strengthening competition, achieving a higher level of transparInterim Financial Regulations. Several regulatory
ency and liquidity, improving investor protection, harmochanges are under consideration in the U.S. market. A
nizing diverse European regulations, and creating a
primary issue involves so-called 12b–1 fees—the name
genuine single market for investment services and activicomes from a section in the Investment Company Act of
ties. MiFID II, which is meant to extend the original direc1940—which were originally intended to cover the costs
tive and focus on any lingering issues, aims to address
of advertising and marketing for mutual funds. The idea
B  S

changes in market structures and technology, further increase transparency and efficiency, broaden the range of
products covered by MiFID I, and continue to bolster investor protection.
that embrace a relatively simple concept: funds that have
lower fees than the typical actively managed fund (in order to compete with passively managed funds) but that
still try to beat the market.
When it comes to products, IFAs will focus on financial
Expected to be published in the fall of 2011, MiFID II will
planning and be more inclined to outsource investment
have a clear impact on distributors of investment proddecisions to asset managers or insurers
ucts. First, it will necessitate a reduction of
through offerings such as multimanageproduct ranges and lead to new advisory
Solvency II capital
ment funds or automated solutions that
formats. It will also require an annual uprequirements will alter
are based on risk profiles defined by indate to investors, with increased transparthe attractiveness of
vestors.
ency and more comprehensive reporting
standards, potentially reducing sales effispecific asset classes
ciency. For asset managers, the key potenSolvency II. Solvency II legislation, which
for European insurers.
tial impact will involve the new induceis scheduled to take effect in 2013, poses
ment regime, which may ban retrocession
several key challenges to asset managers
payments to distributors on certain asset-management
working with clients that are European insurance compaproducts.
nies. First, Solvency II capital requirements will alter the
attractiveness of specific asset classes for insurers. For example, there is a 39 percent capital charge on equity and
RDR. In 2006, the U.K. Financial Services Authority (FSA)
a 29 percent charge on any real-estate investments, but
launched the Retail Distribution Review (RDR) with the
essentially no charge for EU government bonds. Such exintention of increasing the integrity of domestic financial
ternal factors will have to be represented in portfolio
markets. Stating that the RDR is “essential for promoting
strategies. Second, assets will have to be managed against
a resilient, effective, and attractive retail investment marliabilities—not just against benchmarks. The solvency
ket,” the FSA says that the RDR will improve the clarity
levels of many insurance companies may become more
with which firms describe their services to consumers, advolatile depending on interest rate movements. Third,
dress the potential for advisor remuneration to distort
transparency will have to increase. The requirements for
consumer outcomes, and raise the professional standards
risk reporting and integrated risk modeling will oblige asof investment advisors.
set managers to deliver far greater openness and clarity,
as well as better simulation capabilities.
The new framework, set to take effect at the end of 2012,
is likely to result in a shi in distribution in the U.K. The
overall number of independent financial advisors (IFAs)
Basel III. The Basel III measures, published in December
will diminish and there will be some level of consolida2010, focus strongly on the redefinition of core regulatory
tion. Moreover, those IFAs that remain may focus their
capital and adjustments of risk-weighted assets for banks.
attention on the high end of the market, creating a situaThese measures also introduced liquidity ratios for both
tion in which private investors with relatively modest
the short term (the liquidity coverage ratio, or LCR) and
sums to invest may find it difficult to obtain reliable adthe medium to long term (the net stable-funding ratio, or
vice—not the result that the FSA presumably intended.
NSFR), as well as a set of monitoring tools.
In particular, we have observed that some leading retail
players have stopped providing investment advice to
One potential threat to asset managers as a result of
mass-market investors.
Basel III is that many banks will be hotly competing for
deposits in order to meet the new requirements—deposFor asset managers, the key impacts relate to pricing and
its that might otherwise have found their way into muproduct range. With regard to pricing, all commissions
tual funds or other investment products. At the same
will have to be clearly disclosed and agreed upon up
time, pressure on deposit margins may enable banks
front. In addition, previously hidden trail commissions
without major funding needs to put more emphasis on
could be prohibited on new sales. Some U.K. asset mantheir investment businesses, creating opportunities for
agers are already developing “RDR friendly” products
asset managers with close ties to banking channels. More
T B C G
“money in motion” will remain significant, and flows into
some types of products and asset classes, such as emerging-market equities, could be quite robust.
over, the need for banks to apply more capital against
risky assets could result in the shi of some proprietary
trading activities toward hedge funds, fueling hedge fund
growth.
Developing markets such as Latin America and many
parts of Asia—where the overall investment infrastructure is still being developed and the sales landscape is far
more diverse—face a different set of challenges and will
likely grow at a faster pace, albeit from a much lower
base of regional and domestic AuM.
Different Markets Pose Different
Competitive Challenges
The asset management landscape will likely witness
different sets of challenges for different markets along the
entire asset-management value chain. Mature markets
such as North America, Europe, Australia, and Japan—
where penetration of some asset-management products
is stagnating, market sentiment is somewhat tepid, and
established players with entrenched sales channels are
vying for share among still-wary investors—will likely
grow at a modest pace overall. That said, the amount of
Indeed, despite the crisis, emerging markets have fueled
much of the global growth experienced in recent years.
AuM in developing markets grew from $3.2 trillion to
$4.2 trillion from 2007 through 2010. Six countries in particular have seen significantly faster AuM growth than
the rest of the world: Brazil, Chile, China, India, Mexico,
and South Africa. (See Exhibit 11.)
Exhibit 11. Six Countries Have Shown the Fastest Growth in AuM
Compound annual growth in AuM, 2007–2010 (%)
20
Mexico
India
15
Chile
South Africa
10
Brazil
China
Hong Kong
Sweden
South Korea
Denmark
Taiwan
5
Austria Norway
Netherlands
Ireland
Canada
Luxembourg
Czech Republic
Middle
East
Finland
0
Poland
Australia
Singapore
Portugal2
Italy
Russia
Belgium
United
Kingdom
Germany
France
United
States1
Japan
Switzerland
Spain2
Greece2
–15
0
1
Change in AuM in 2010
($billions; scale = $100 billion)
2
Developed markets
Western Europe
North America
Asia-Pacific
4
Emerging markets
Eastern Europe
Latin America
26
AuM, 2010 ($trillions)
Asia-Pacific
Africa and the Middle East
Source: BCG Global Asset Management Market Sizing database, 2011.
Note: For all countries whose currency is not the U.S. dollar, we applied the average 2010 exchange rate to all years.
1
The change in AuM in 2010 for the United States is $2.0 trillion.
2
Negative evolution in AuM in 2010.
B  S

Although it is difficult to forge a clear view about exactly
how fast the largest developing markets will expand,
overall penetration of asset management products in
emerging markets will certainly continue to increase both
in the medium and long term. (See also Exhibit 9 of the
BCG report In Search of Stable Growth: Global Asset Management 2010, July 2010.) If growth in these markets remains
aggressive, their share of global AuM could move from
5 percent today to 15 percent within the next decade. Yet
it is equally clear that forays into Asian markets by Western asset managers are complicated and require the right
set of skills and resources. We have seen many Western
institutions invest heavily in the region, with the shortterm result of lower productivity.
To be sure, some global players are starting to enjoy
some success. In our benchmarking for this report, we

counted no fewer than ten Western players that posted
net sales above $5 billion from the Asia-Pacific region—
with a handful gaining inflows of between $10 billion
and $30 billion. All the same, asset managers that are
considering making a move into the region need to recognize the challenges ahead: intense competition, overcapacity in many areas, and a regulatory climate favorable to local players. In fact, we have observed a few
global asset managers exiting key markets such as China
and India.
Ultimately, as we shall explore in the next chapter, asset
managers seeking to tap into growth opportunities in either mature or emerging markets will need a plan and a
set of tools—not only for their home markets but also for
potential expansion abroad.
T B C G
How to Maneuver Both at
Home and Abroad
A
lthough most players benefited from the
postcrisis rebound in 2009 and 2010, there
is considerable doubt about the prospects
for further growth. Now is the time for asset managers in every region to determine their growth aspirations and take action.
And many are doing so. Some U.S. players, for example,
are seeking opportunities not only at home but in Europe, Latin America, and Asia-Pacific. Some European institutions are making forays into Asia as well as into
neighboring European markets. And some asset managers in Asia-Pacific are trying to find footholds in more
highly developed economies.
Our proprietary research and client work have helped us
identify potential actions that asset managers can take to
enhance their chances of successful growth—both at
home and abroad.
Pursuing Growth in Your Home Market
Asset managers in low-growth, mature markets face particularly daunting challenges in expanding their footprints at home. We have found that the following specific
steps are critical: sharpen your value proposition, focus
more on the end customer, enhance your relationships
with distributors, review and streamline your product
portfolio, explore innovation, master the regulatory climate, and revisit resource allocation.
Sharpen the value proposition. Perhaps now more than
ever, investors are looking for some degree of certainty
about the security and growth potential of their investments. Amid virtually limitless investment choices, a
B  S
crystal-clear value proposition can be a true differentiator. Asset managers need to review what they do best,
make it distinctive, and market it powerfully.
Focus more on the end customer. All too oen, retail asset managers have cared too little about private investors,
in effect perceiving distributors as their end customers. Indeed, relatively few players have fully exploited opportunities to better understand what private investors really
prefer in terms of products, services, and channels. Even
fewer have seized the opportunity to help distributors
comprehend the needs of the end customer. Amid intensifying competition, asset managers must dedicate the
necessary resources to do more in these areas.
On the institutional side, asset managers must better
adapt their offerings to the needs of the investor—and
truly take the client’s perspective. Institutions are increasingly interested not only in performance but also in higher levels of service in terms of customization of products
and clarity of reporting.
Enhance relationships with distributors. Asset managers must also forge better overall ties with the distributors that link them to the end customer, finding ways to
stimulate new demand for their products. As the battle
for “shelf space” heats up, they must ensure that their
products are getting sufficient display. They can help
themselves by strengthening sales support in a number
of areas, such as providing better training on products,
backing up advisors on specific investment solutions, and
being an active thought partner with distributors with regard to new sales approaches.
Review and streamline the product portfolio. An ongoing struggle for many asset managers is the tendency

to keep underperforming products “on the shelf” for too
long. Keeping such products alive not only can be very
costly but also can dilute highly targeted value propositions. Overall, not enough players regularly review and
prune their portfolios in order to achieve the most robust offering.
and just half calculated profitability at the client segment
level. Our benchmarking and client work have shown us
that these findings are not unusual. Efforts to analyze the
sources of profitability from all angles—and allocate resources accordingly—are simply not systematic throughout the industry.
Explore innovation. Asset managers will
need to embrace a true spirit of innovaPursuing Growth Across
Players that truly
tion in order to address the many chalBorders
search for (and
lenges that lie ahead. In addition to those
identify) innovative
we have already discussed, these hurdles
Although growing at home is particularly
include protecting capital in an inflationdifficult for asset managers in highly sosolutions will have
ary environment, coping with longevity
phisticated, low-growth markets, attemptan advantage.
risk, and helping clients accumulate sufing to expand abroad—a natural response
ficient savings for retirement in a taxto the limited potential at home—poses
heavy environment. The products of tomorrow will by
significant hurdles as well. Foreign markets can be striknecessity require multiple competencies—for example,
ingly diverse on many levels, and can involve problems
in capital market structuring and pricing, actuarial
such as varying regulatory environments, disparate inexpertise, and fiscal matters. Players that truly search
vesting cultures, and multiple languages. Not only are
for (and identify) innovative solutions will have an adsuch hurdles difficult for players trying to branch out
vantage.
from mature home markets, but they are also daunting
for asset managers based in higher-growth emerging markets that want to test foreign waters.
Master the regulatory climate. The financial crisis obviously lent considerable momentum to the developThe first step in pursuing growth across borders is to dement of market reforms—some of which had been initivelop a clear view about which markets you would like
ated before the downturn took hold. In the face of so
to enter given your current capabilities and resources.
much uncertainty about the ultimate impact of regulaJust as important is an accurate assessment of the level
tory moves, both retail and institutional asset managers
of competition in the new market. Finally, part of any vimust keep fully abreast of all such measures in order to
able growth agenda is deciding where you do not want
provide steady guidance to clients and adapt their own
to be in terms of regions, products, and client segments.
business models.
Surprisingly, some asset managers begin their foreignexpansion initiatives without fully addressing these
Revisit resource allocation. Although most asset manbasics.
agers strive to deliver overall excellence in service, they
cannot afford to devote the same resources to less profitOur work with clients in Europe, the Americas, and Asiaable clients (or products) that they do to highly profitPacific has helped us identify some key success factors in
able ones. Asset managers will increasingly need to difeach region. These factors can apply both to asset managferentiate their service levels according to the profit
ers entering from other regions and to local players atcontribution from the particular investor or product.
tempting intraregional moves.
This oen means making the necessary investment in
management information systems—a plunge that many
global players have not yet taken.
Europe. There are marked differences among the various European asset-management markets. For example,
For example, we recently conducted a survey of 16 asset
on the retail side, a clear distinction exists between the
managers in France—representing 67 percent of domesU.K. market—which is the most open and is dominated
tic AuM—which revealed that not all of them have necesby IFAs—and continental Europe, where distribution is
sarily built the systems they need. Not quite two-thirds of
dominated by retail banks. On the institutional side,
the survey participants measured profitability by product,
some markets are focused primarily on serving insur
T B C G
market and a platform in Luxembourg or Ireland to
serve continental Europe—with sales teams either located in both platforms if operating at scale (typically above
€2 million in revenues) or based in London for subscale
operations. Some successful players centralize investment management in one unique location, although
those with significant size typically decide to invest in
Not surprisingly, a principal success factor for asset manon-the-ground teams in order to serve disagers in Europe is the ability to perform
tinct local needs. We have also found that
well across diverse segments and markets.
Leading third-party
players that are successful in expanding
In retail, well-differentiated products, topdistributors now
in Europe enter just one market (or poslevel service to distributors, and a strong
tend to rely on just a
sibly a few markets) at a time, and think
reputation—supported by solid overall
carefully about the optimal sequencing
performance—are critical. In institutional,
few very successful
from a product, client-segment, and regua good track record with consultants, bestproducts.
latory viewpoint.
in-class risk-management practices, and
highly customized service are crucial.
The Americas. Successful entry into the U.S. retail asIt is worth noting that we have seen some new patterns
set-management market has always been a challenge
emerging over the past two years. One of these trends is
for foreign newcomers. Historically, asset managers enthat leading third-party distributors in Europe now tend
gaged distributors’ home offices to gain access to their
to rely on just a few very successful products. For examplatforms, usually attempting to bring a compelling
ple, in 2010, the top 20 best-selling funds in Europe acproduct story based on good performance, an incounted for 55 percent of total net sales. What’s more,
demand asset class, or some other feature. But this apthe top three players had 11 funds out of the top 20 in
proach is no longer sufficient. Today, given thousands of
net sales. Such a high degree of market concentration inproducts to choose from, asset managers must also tardicates how important it is for asset managers to estabget the professional buyers in distributors’ home offices.
lish flagship funds that can attract investors from many
Because advisor behavior is increasingly influenced by
regional markets. The implication is that players need to
central decision-making, the goal is to gain access to
be prepared for more volatility, because the success of
managed programs or model portfolios. Beyond the
such funds is not built solely on performance.
wire houses, the registered investment advisor (RIA)
channel—given its size and growth rate—is also critical
Some successful asset managers have addressed the volfor asset managers seeking shelf space and “share of
atility issue through shrewd rotation of products—and
mind.” This is true despite the challenging economics of
have succeeded in building strong third-party growth
serving the highly fragmented RIA channel.
over the past five to ten years. In each year, the highest
proportion of net sales was driven by a handful of highly
Securing a position in the U.S. market can be extremely
popular offerings that distributors pushed when those
daunting for foreign entrants. We have observed some
specific funds fit best with the prevailing macroeconomasset managers that have been able to grow organically
ic winds. Obviously, not all successful asset managers rothrough the right blend of performance, product differtate products and focus on market timing. Some continentiation, or distribution push—or by creating niche
ue to rely solely on a few tried-and-true funds with solid
positions on the basis of a specialized distribution focus,
track records throughout many market cycles. Finding
either institutional or retail, or a particular asset class
the right logistical setup—in terms of sales teams, invest(such as international equity, small cap, high-yield fixed
ment management, and middle- and back-office funcincome, or emerging markets). A few others have built
tions—to efficiently serve different markets is also critipositions through M&A. Overall, however, stories of forcal in Europe.
eign players successfully achieving viable positions in
the U.S. market are fairly rare. It remains to be seen how
In terms of the operating model, the typical setup in Eumany more will try—and ultimately manage to gain a
rope is to have a platform in the U.K. to serve the U.K.
foothold.
ance companies, while others—such as the U.K., the
Netherlands, the Nordic countries, and Germany—have
significant pension-fund markets that feature varying
levels of intermediation through investment consultants.
B  S

To gain access to more restricted growth markets such as
China—where onshore business is allowed only through
joint ventures—finding the right partner (such as a bank,
securities firm, or insurance company) and optimally
◊ Large, sophisticated markets ( Japan and Australia)
structuring the partnership agreement are critical to capturing distribution advantages. For example, the right
◊ Regional hubs (Hong Kong and Singapore)
choice of retail-banking partner may significantly drive
fund assets, just as a wise choice in an in◊ Emerging giants (India and China)
surance company partner could offer an
Asian retail clients
asset manager the possibility of tapping
◊ Next-tier growth markets (South Korea
into the vast growth of the Chinese penand Taiwan)
tend to have a strong
sion market.
preference
for
homeEach type of market comes with distinctly
Cross-border flows can offer opportunities
different growth opportunities. Moreover,
market investing.
for both foreign and local asset managers
unlike some Western markets that are
to participate in the growth of asset mandriven by one or two client segments, the
agement in China. In order to invest in Chinese assets
spectrum is more diverse in Asia, with real opportunities
from an offshore platform, asset managers must acquire
across segments. Although entry barriers and key success
a specific license—called a Qualified Foreign Institutionfactors differ widely across Asian markets, we have made
al Investor (or QFII) license—that permits a certain insome fundamental observations.
vestment quota. To invest in foreign assets from within
China, asset managers must acquire a Qualified DomesGenerally speaking, institutional investors can be sertic Institutional Investor (or QDII) license. The QFII and
viced from the regional hubs of Hong Kong and SingaQDII licenses offer both foreign and local asset managers
pore, where specific capabilities for client needs (such as
an opportunity to strike partnerships to manufacture
asset-liability management skills for insurance compaand distribute funds. For example, a foreign asset mannies) and dedicated sales teams are critical. We have
ager might establish a joint venture with a local insurfound, however, that asset managers can increasingly
ance company in order to serve the insurer’s overseas
benefit from having local representatives in certain key
investment portfolio. The foreign asset manager would
onshore markets.
obtain the assets to manage, and the local insurer would
receive an equity stake in the joint venture and acquire
In these regional hubs—as well as in large, sophisticated
new investment capabilities.
markets—retail distribution tends to be dominated by
several large banks. A strong brand and track record, wellAnother significant growth opportunity is in Asian sovdifferentiated funds, solid partnerships, and workable retereign wealth funds (SWFs). For example, assets in Chirocession arrangements are essential to gaining shelf
na’s National Social Security Fund (NSSF) and in China
space within the networks of these retail banks. In the
Investment Corporation (CIC) grew at a compound annext-tier growth markets of South Korea and Taiwan, asnual rate of 30 percent from year-end 2007 through 2009.
set managers focus more on forging the right relationMoreover, penetration of overseas mandates is increasships with master agencies and on obtaining representaing. To participate in this space, asset managers need to
tion with local partners. Three entry models have been
be able to support the goals of SWFs, such as diversifyobserved in all of these markets: organic growth, partnering, reducing exposure to the U.S. dollar, and focusing on
ships with strong local distributors, and M&A.
alternatives and emerging markets.
In addition, it is important to note that Asian retail clients
Finally, it is worth noting that the Japanese market has
tend to have a strong preference for home-market investproved to be quite resilient in the wake of both the
ing—not dissimilar to North American and European
financial crisis and the recent devastating earthquake.
markets. In order to compete, asset managers must there(See the sidebar “In Japan, Opportunity in a Resilient
fore have a strong offering of funds that concentrate on
Market.”)
local Asian assets.
Asia-Pacific. The Asia-Pacific asset-management landscape is essentially composed of four types of markets:

T B C G
In Japan, Opportunity in a Resilient Market
Assets under management in the Japanese market grew
at a compound annual rate of 6 percent from year-end
2002 through 2010. This growth trend is expected to continue, especially on the retail side.
that provide global exposure and offer monthly cash distributions have attracted heavy inflows.
When it comes to distribution, there is an increasing trend
toward open architecture. Large banks and major financial-advisory and wealth-management firms are opening
their networks to obtain access to distinctive products
offered by global asset managers. Smaller, regional banks
with open networks are gaining share in retail distribution.
There are many reasons for this optimism. For example,
the penetration of mutual funds in Japan represents less
than 5 percent (64 trillion yen) of total personal financial
assets in the country (1,400 trillion yen)—a much lower
penetration rate than in other developed markets such as
the U.S. (13 percent), Germany (12 percent), and France
(7 percent). Moreover, inflows into mutual funds have
been resilient following the devastating earthquake that
rocked Japan in March 2011. Outflows of 300 billion yen in
March were countered by inflows of 400 billion yen in
April.
As for the overall asset-management landscape in Japan,
the industry’s high growth potential and relatively high return on risk assets (RORA) have prompted some large
financial institutions to strengthen their capabilities
through inorganic growth. Non-Japanese asset managers
are also affecting the landscape. Indeed, some global players have developed their own branches or distribution
support teams in Japan. A few other foreign institutions
have reduced their presence in Japan. Overall, the share of
foreign players in the Japanese retail market has been stable at about 15 percent of AuM. (See the exhibit below.)
Chronically low interest rates and weak performance by
domestic equity and fixed-income markets in Japan have
helped raise the profile of retail mutual funds as an increasingly important vehicle for diversifying personal financial assets globally. Indeed, certain high-profile funds
Foreign Asset Managers Have a Stable 15 Percent Share of Retail AuM in Japan
Retail AuM in Japan by type of asset manager (trillions of yen)
69
64
11
(16%)
11
(16%)
41
6
(15%)
6
(15%)
22
(32%)
2004
8
(15%)
24
(35%)
2006
10
(16%)
Foreign players
9
(15%)
Domestic independent
managers
20
(31%)
Subsidiaries of domestic
banks
24
(38%)
Subsidiaries of domestic
securities companies
8
(15%)
17
(32%)
11
(27%)
18
(43%)
52
20
(38%)
2008
2010
Sources: Nikkin Investment Trust and Pension News; BCG analysis.
Note: Discrepancies in totals are due to rounding.
B  S

In Japan, Opportunity in a Resilient Market (continued)
As for the question of how asset managers can capitalize
on the growth potential of the Japanese market, there are
some clear answers. One critical element is to develop
the capability to originate and package products with
global exposure to meet the diversification needs of Japanese retail investors. Asset managers must also develop
solid distribution partnerships with Japanese banks and
wealth management firms—a goal they can help themselves achieve by building a strong distribution-support
infrastructure.
In our view, global asset managers can adopt any of three
core business models in Japan, depending on their resources and aspirations:
◊ Origination-focused, full-line model. This model involves
establishing a presence along the entire assetmanagement supply chain in Japan—not only originating Japanese products but also packaging, marketing,
I
n conclusion, we offer several thoughts. First and foremost, the need for experienced, professional asset
management has never been greater. In the wake of
a financial crisis that not only destroyed significant value
but also damaged confidence in capital markets as well
as in many traditional investment beliefs, people are
looking—now more than ever—for sure-handed investment guidance and expertise.
Obviously, the current macroeconomic environment
has generated considerable doubt about the direction
that certain asset classes will take and how to optimize
product portfolios. Those who think that inflation will
markedly increase might think that real assets such as
commodities are very attractive. Those who believe that
growth will be higher than expected over the next few
years will favor equities. Those who worry that we may
sink back into recession may lean toward fixed income.
Overall, from a product portfolio standpoint, we may

and distributing both Japanese and global offerings. To
succeed with this model, asset managers must develop
a dedicated team with high-level capabilities in both
Japanese and global assets. They must also forge solid
distribution partnerships.
◊ Distribution-focused model. This model is concentrated
on distributing global products to Japanese investors.
Excellent packaging and marketing capabilities, as well
as best-in-class distribution partnerships, are key success factors.
◊ Subadvisory-focused model. This model is centered on
providing subadvisory services to Japanese asset managers without necessarily having fund management or
distribution capabilities in Japan. The key requirement
is having distinctive fund-management capabilities in
global assets.
be at a more unsettled time than we have been in many
years.
Such uncertainty obviously means both challenges and
opportunities for asset managers. Indeed, the challenges
of making the right calls on markets and asset classes—
in addition to the many other hurdles addressed in this
report—are enormous. They will put asset managers to
the test, forcing them to find innovative ways to meet customer needs. If asset managers do not rise to the occasion, other peripheral industries may try to encroach on
their territory—perhaps with fewer regulatory constraints
to overcome.
But the opportunity to outperform competitors is every
bit as great as the challenge of vying with them for market share and profits. We have said before that in highly
uncertain times, the best players seize the moment.
Today, that statement is truer than ever.
T B C G
For Further Reading
The Boston Consulting Group publishes other reports and articles that
may be of interest to senior financial
executives. Recent examples are listed here.
Checks and Balances: The Banking
Treasury’s New Role Aer the
Crisis
Solvency II: Anticipating the
Far-Ranging Impact on Business
Strategy
A Focus by The Boston Consulting Group,
May 2011
A White Paper by The Boston Consulting
Group, October 2010
Shaping a New Tomorrow: Global
Wealth 2011
In Search of Stable Growth: Global
Asset Management 2010
A report by The Boston Consulting
Group, May 2011
Social Media: The Opportunities
for Insurers
An article by The Boston Consulting
Group, May 2011
Operational Excellence in Retail
Banking: How to Become an AllStar
A Focus by The Boston Consulting Group,
February 2011
A report by The Boston Consulting
Group, July 2010
Leveling the Playing Field:
Upgrading the Wealth
Management Experience for
Women
A White Paper by The Boston Consulting
Group, July 2010
Crisis as Opportunity: Global
Corporate Banking 2010
A report by The Boston Consulting
Group, June 2010
Winning Aer the Storm: Global
Payments 2011
A report by The Boston Consulting
Group, February 2011
The Road to Excellence: Global
Retail Banking 2010/2011
A report by The Boston Consulting
Group, December 2010
B  S

Note to the Reader
About the Authors
Kai Kramer is a partner and managing director in the Frankfurt office of
The Boston Consulting Group and
the global leader of the asset management segment. Brent Beardsley
is a partner and managing director
in the firm’s Chicago office. Hélène
Donnadieu is a principal in BCG’s
Paris office and the global manager
of the asset management segment.
Monish Kumar is a senior partner
and managing director in the firm’s
New York office and leads the U.S.
East Coast Financial Institutions
practice. Andy Maguire is a senior
partner and managing director in
BCG’s London office. Philippe Morel
is a senior partner and managing director in the firm’s Paris office.
Masahide Ohira is a partner and
managing director in BCG’s Tokyo
office. Gary Shub is a partner and
managing director in the firm’s Boston office. Tjun Tang is a partner
and managing director in BCG’s
Hong Kong office.
Acknowledgments
First and foremost, we would like to
thank the asset management institutions that participated in our current
and previous research and benchmarking efforts, as well as other organizations that contributed to the
insights contained in this report.
Within The Boston Consulting
Group, our special thanks go to Akin
Akbiyik, Elif Arslan, Marcus Gensert,
Daniel McBee, and Andrea Walbaum.

In addition, this report would not
have been possible without the dedication of many members of BCG’s
Financial Institutions practice, including Eric Ellul, Ashish Garg, Adam
Grodecki, David Hörmeyer, Jeff
Kotzen, Parth Krishna, Hikari Marukawa, Markus Massi, Tim Nolan,
Frank Plaschke, Nils Reich, Patricio
Servitje, Sven-Olaf Vathje, Yasuhiro
Yamai, and Naohide Yamamoto.
Finally, grateful thanks go to Philip
Crawford for his editorial direction,
as well as to other members of the
editorial and production team, including Gary Callahan, Angela
DiBattista, Kim Friedman, and
Janice Willett.
For Further Contact
If you would like to discuss your asset-management business with The
Boston Consulting Group, please contact one of the authors of this report.
The Americas
Brent Beardsley
BCG Chicago
+1 312 993 3300
beardsley.brent@bcg.com
Europe
Hélène Donnadieu
BCG Paris
+33 1 40 17 10 10
donnadieu.helene@bcg.com
Kai Kramer
BCG Frankfurt
+49 69 9 15 02 0
kramer.kai@bcg.com
Andy Maguire
BCG London
+44 207 753 5353
maguire.andy@bcg.com
Philippe Morel
BCG Paris
+33 1 40 17 10 10
morel.philippe@bcg.com
Asia-Pacific
Masahide Ohira
BCG Tokyo
+81 3 5211 0300
ohira.masahide@bcg.com
Tjun Tang
BCG Hong Kong
+852 2506 2111
tang.tjun@bcg.com
Monish Kumar
BCG New York
+1 212 446 2800
kumar.monish@bcg.com
Gary Shub
BCG Boston
+1 617 973 1200
shub.gary@bcg.com
T B C G
For a complete list of BCG publications and information about how to obtain copies, please visit our website at
www.bcg.com/publications.
To receive future publications in electronic form about this topic or others, please visit our subscription website at
www.bcg.com/subscribe.
7/11
Abu Dhabi
Amsterdam
Athens
Atlanta
Auckland
Bangkok
Barcelona
Beijing
Berlin
Boston
Brussels
Budapest
Buenos Aires
Canberra
Casablanca
Chicago
Cologne
Copenhagen
Dallas
Detroit
Dubai
Düsseldorf
Frankfurt
Geneva
Hamburg
Helsinki
Hong Kong
Houston
Istanbul
Jakarta
Johannesburg
Kiev
Kuala Lumpur
Lisbon
London
Los Angeles
Madrid
Melbourne
Mexico City
Miami
Milan
Minneapolis
Monterrey
Moscow
Mumbai
Munich
Nagoya
New Delhi
New Jersey
New York
Oslo
Paris
Perth
Philadelphia
Prague
Rio de Janeiro
Rome
San Francisco
Santiago
São Paulo
Seoul
Shanghai
Singapore
Stockholm
Stuttgart
Sydney
Taipei
Tel Aviv
Tokyo
Toronto
Vienna
Warsaw
Washington
Zurich
bcg.com